NO. 96-072 INTHESUPREME

COURTOFTHESTATEOFMONTANA 1996

MARLENG. SAVIK, anindividual andJACKW.PIIPO, anindividual,

Plaintiffs andAppellants,

v. ENTECH,INC., aMontana Corporation; MICHAELJ. MELDAHL,anindividual; andDOESl-100, inclusive,

Defendants andRespondents

APPEALFROM: District Court of the Fourth Judicial District,

In andfor the County of Missoula, TheHonorable EdP. McLean, Judge presiding.

COUNSELOFRECORD:

For Appellants: Donald V. Snavely; Snavely LawFirm, Missoula Montana Cynthia K. Smith; Cederberg, Shott &Smith, Missoula, Montana

For Respondents: Terry J. MacDonald; Garlington, Lohn &Robinson, Missoula, Montana Patrick T. Fleming, Attorney at Law, Butte, Montana

Filed: Submitted onBriefs: August 8, 1996 Decided: September 12, 1996Justice W.William Leaphart delivered the Opinion of the Court.

Marlen G.Savik andJack Piippo (Savik andPiippo) appeal from the jury verdict of the Fourth Judicial District Court, Missoula County, denying their request for damagesfor breach of contract. Weaffirm in part, reverse in part and remand. For purposes of this decision, this Court will discuss only the following dispositive issues: 1) Did the District Court err in dismissing Savik and Piippo's breach of contract claim? 2) Did the District Court err in instructing the jury on parol evidence when Savik and Piippo sought recovery under atheory of fraudulent inducement?

BACKGROUND In 1983, Savik and Piippo organized Touch America, Inc., a long distance telephone companywith services in Montana. In May of 1990, Savik andPiippo were the sole stockholders andprincipal officers of Touch America and were in control of all of its operations. Entech is aMontana corporation that has owned and operated various non-utility businesses including businesses involved in communications technology. OnMay15, 1990, Savik and Piippo entered into awritten contract with Entech for the sale of all of the assets of Touch America. During negotiations and following the negotiation period, Entech's Vice President, Michael J. Meldahl (Meldahl) was the chief negotiator for Entech. Following negotiations, Entech purchased all of Touch America's assets pursuant to awritten sale agreement.

2TheSaleAgreement (Agreement) set forth avariable sale price

consisting of a$1.15 million downpayment, plus adistribution to Savik and Piippo of twenty percent of the net profits of the business generated during the first five years after the sale. The net profits distribution hadamaximumpayment of $783,545. TheAgreement also required that Savik andPiippo bepermitted to work for Entech for three years after the sale of TouchAmerica. TheAgreement stated that Savik and Piippo would "be entitled to those benefits that are afforded to other employees under Entech's employment policies." In accordance with the Agreement, Savik and Piippo worked for Entech for three years prior to their termination. In 1993, Savik andPiippo brought anaction in District Court claiming damages based ontwo theories. First, Savik and Piippo claimed that Entech breached the Agreement by terminating their employment after three years. Second, Savik and Piippo claimed that they were fraudulently induced into entering the Agreement. The District Court granted summaryjudgment dismissing Savik and Piippo's claims of breach of contract finding that the express terms set forth in the contract were clear andthe parol evidence rule barred consideration of the oral communication between Meldahl and Savik and Piippo. Therefore, the only remaining issue before the District Court waswhether Entech fraudulently induced Savik and Piippo into entering the Agreement. At trial, Savik andPiippo argued that the employment clause, along with various representations by Meldahl, created the

3impression that they would become permanent Entech employees.

Meldahl's alleged representations are the basis of the fraudulent inducement claims made by Savik and Piippo. Following a jury verdict in favor of Entech, Savik and Piippo brought this appeal challenging, amongother things, the District Court's decision to dismiss their breach of contract claim aswell asjury instructions regarding parol evidence.

DISCUSSION 1) Did the District Court err in dismissing Savik and Piippo's breach of contract claim? Our standard of review in appeals from summary judgment rulings is de novo. Meadv. M.S.B., Inc. (1994), 264Mont. 465, 470, 872P.2d 782, 785. Whenwereview adistrict court's grant of summary judgment, weapply the sameevaluations as the district court based onRule 56, M.R.Civ.P. Bruner v. Yellowstone County (1995), 272Mont. 261, 264, 900P.2d 901, 903. Savik and Piippo's claims of breach of contract stem from their interpretation of the intent of paragraph 4.13 of the Agreement. That paragraph provided in relevant part:

Subject to satisfying Entech's hiring policies, Entech shall retain Messrs. Savik andPiippo for terms of three (3) years each at annual initial salaries of $60,000 each. Messrs. Savik andPiippo will beentitled to those benefits that are afforded to other employees under Entech's employment policies[.l Savik andPiippo maintain that the "benefits" available to themas Entech employees included not only vacation, health insurance, and pension, but also permanent employment terminable only for good

4cause. Savik andPiippo basedtheir interpretation of the contract

on oral representations that they claim were made to them by Meldahl. Theyalso claim that the term "benefits," asused in the contract, was ambiguous and thus parol evidence was needed to explain what the parties intended in using that term. Theparol evidence rule in Montana hasbeen codified under §§ 28-2-904, and 28-2-905, MCA. Section 28-2-904, MCA, explains, "[tlhe execution of acontract in writing, whether the law requires it to bewritten or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." Section 28-2-905, MCA,further provides that whenanagreement hasbeen reduced to writing bythe parties, there can be noevidence of the terms of the agreement other than the contents of the writing except when amistake or imperfection of the writing is claimed or whenthe validity of the agreement is the fact in dispute. In their claim for breach of contract, Savik and Piippo contend that the term "benefits" was ambiguous andthus the court should haveallowed parol evidence as to statements madeto them by Meldahl which led them to believe that "benefits" included permanent employment. This Court has held that where the terms of the contract are ambiguous and uncertain, evidence of attending circumstances is admissible. Molerway Freight Lines v. Rite-Line Transp. (1995), 273Mont. 95, 100, 902P.2d 9, 12. In Monte Vista Co. v. Anaconda Co. (1988), 231Mont. 522, 528-29, 755P.2d 1358, 1362, this Court explained:

5Anambiguity exists whena contract is subject to two

interpretations and parol testimony can be used to determine what the parties intended. [Citations omitted.] However, intent of the parties is only looked to whenthe agreement in issue is not clear onits face. [Citation omitted.] In the present case, the District Court gave the following rationale for granting summaryjudgment: The express language of that provision c4.131 clearly establishes athree year term of employment. Plaintiffs contend that the intent of the provision wasto bind the individual Plaintiffs to aminimum of three years, and that the language in the provision entitling Plaintiffs to "those benefits that are afforded to other employees under Entech's employment policies" include the "benefit" of permanent employment absent good cause for firing Plaintiffs. This Court doesnot find that the provision language is ambiguous andtherefore, there is noneedto look to the parties' intent, and in any event, such interpretation would require adding language to the agreement which would contradict the express three year term in violation of the parol evidence rule. After reviewing the record and the Agreement, weagree with the District Court that the provision regarding "benefits" and three years of employment wasclear andunambiguous anddid not include permanent employment. Ourdecision in Sherrodd, Inc. v. MorrisonKnudsen Co. (1991), 249Mont. 282, 815P.2d 1135, is onpoint. In that case, Sherrodd had contracted to perform certain earth work for Morrison-Knudsen. Theterms of the written contract provided that all of the earthwork would be performed for a lump sumof $97,500. Sherrodd, 815 P.2d at 1136. After completion of the work, Sherrodd claimed that it wasowedmoremoneythan the $97,500 because it hadbeen pressured to execute the contract andthat it had been told that adeal would be worked out wherein Sherrodd would be paid more than the sumprovided for in the contract.

6Sherrodd, 815 P.2d at 1136. Thedistrict court granted summary

judgment to Morrison-Knudsen, holding that the parol evidence rule precluded Sherrodd from relying upon oral representations which

were not incorporated into the written contract. This Court affirmed andheld that Sherrodd's contention that the $97,500 did not cover the entire job contradicted the terms of the written agreement. Sherrodd, 815 P.2d at 1137. In applying the parol evidence rule, weconcluded: the compensation of Sherrodd is governed exclusively by the written contract and that Sherrodd's claims are barred under the parol evidence rule. Wehold that the District Court did not err in granting summaryjudgment for defendants. Sherrodd, 815P.2d at 1137. Aswith Sherrodd's attempt to vary the amount of compensation specified, Savik and Piippo's reliance on oral representations that would vary the expressed term of employment wasbarred bythe parol evidence rule. Accordingly, the District Court was correct in granting summary judgment and dismissing the breach of contract claim.

2) Did the District Court err in instructing the jury on parol evidence when Savik and Piippo sought recovery under atheory of fraudulent inducement? The standard of review of adistrict court's conclusions of law is whether the court's interpretation of the law is correct. Carbon County v. Union Reserve Coal Co. (19951, 271Mont. 459, 469, 898 P.2d 680, 686. A district court has broad discretion in instructing the jury andwewill not reverse the court onthe basis of alleged instructional errors absent an abuse of discretion. 7Werre v. David (Mont. 1996), 913 P.2d 625, 635, 53 St.Rep. 187,

193. Further, when we examine whether jury instructions were properly given or refused, weconsider the challenged instructions in their entirety, the evidence at trial and other instructions given bythe court. Cechovic v. Hardin &Associates, Inc. (1995), 273Mont. 104, 116, 902P.2d 520, 527. Whenaparty alleges fraud in the inducement, it is incumbent upon the district court to admit parol evidence onthe question. Dewv. Dower (1993), 258Mont. 114, 120, 852P.2d 549, 552; Dodds

v. Gibson Products Companyof Western Montana (1979), 181 Mont. 373, 377, 593 P.2d 1022, 1024. For ajury to adequately consider

aparty's claim of fraudulent inducement, it is critical that it consider evidence outside of the written agreement assuch evidence goes to the heart of the claim. In the instant case, the District Court gave the following jury instructions over Savik and Piippo's objection:

[No. 81 The execution of a contract in writing, whether the law requires it to beornot, supersedes all the oral negotiations or stipulations concerning its matter which preceded oraccompanied the execution of the instrument. [No. 101Acontract is to beconstrued according to the intention of the parties at the time of contracting. If the contract is reduced to writing, the intention of the parties is to beascertained from the writing alone, if possible. These instructions were given to the jury despite the fact that Savik and Piippo's contract claim had been dismissed and, thereafter, they were advancing only a claim of fraud in the inducement. In effect, these instructions kept the jury from 8considering the evidence Savik and Piippo brought forward in

support of their claim of fraudulent inducement. Whenfraud is alleged, par01 evidence maybeconsidered bythe jury. Section 28-2-905(2) MCA. Seealso Flemmer v. Ming (1980), 190Mont. 403, 621P.2d 1038. Limiting ajury's consideration of evidence to awritten agreement creates an illogical requirement that analleged fraud leading to the creation of the contract be demonstrated byawriting. Webcor Electronics v. HomeElectronics (1988), 231 Mont. 377, 382, 754 P.2d 491, 494. This Court has previously held that, notwithstanding the parol evidence rule, fraud in the inducement is provable by parol evidence. Dew -I 852 P.2d at 552; Dodds, Mersy v. Gibson Products Co. (19791, 181Mont. 373, 377, 593P.2d 1022, 1024; Goggansv. Winkley (1970), 154Mont. 451, 459, 465P.2d 326, 330. In the instant case, the District Court's instructions regarding parol evidence effectively precluded the jury from considering pre-contract conversations between Meldahl and Savik and Piippo. Since Savik and Piippo's claim of fraud in the inducement was based onpre-contract representations by Meldahl, the communications between Savik and Piippo and Meldahl were crucial to the jury's consideration. Having reviewed the jury instructions in their entirety, we hold that the challenged instructions effectively precluded the jury from considering communications between the parties outside of the written agreement. Evidence of communication between the parties was crucial to Savik and Piippo's claims of fraudulent

9inducement. Wehold that the District Court abused its discretion

by instructing the jury not to consider parol evidence in aclaim of fraudulent inducement. Accordingly, weaffirm in part, reverse in part and remand for

anew trial on the issue of fraudulent inducement.

Weconcur:

Justices

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